Prorating pay when a salaried employee is fired

The key is whether it was a ‘for cause’ termination

By Linda Johnson, Esquire

Published: February 21, 2013

Linda Johnson, as co-chair for both the Litigation Department and Education Law Group at the law firm of McLane, Graf, Raulerson & Middleton, can be reached at 603- 628-1267 or linda.johnson@mclane.com.

Q.I recently fired one of my managers because he engaged in abusive behavior to some employees. His approach to managing employees by yelling and swearing at them was simply not acceptable. We had counseled the manager on previous occasions about acceptable management styles, but his behavior escalated instead of improving. I fired him on Monday after another incident with an employee, and he is now claiming that, as a salaried employee, he should have been paid through the entire week instead of just for Monday. Can he possibly be right about that?

A. Probably not. Under New Hampshire law, a salaried employee is entitled to be paid for the entire pay period if the employee works any time during the pay period, with very limited exceptions. In January 2005, this law was specifically revised to provide that an employer may prorate to a daily basis when a salaried employee is “terminated for cause.”

Unfortunately, the term “for cause” is not defined in the law so there is lack of clarity about what would constitute “for cause” to justify the proration of the final pay to a daily basis.

There have been several decisions by the New Hampshire Department of Labor, including one decision as late as November 2012, in which the department provides guidance on how they will evaluate a situation such as this. In the November 2012 decision, a salaried employee was terminated for poor performance and paid only through the last day of work -- not for the entire pay period.

The employee had previously received a written suspension notice, but that notice did not notify the employee that his actions could result in termination. The employee sought payment for the entire pay period. In ruling in favor of the employee, the department found that because the employee did not receive notice, express or fairly implied, that his poor performance could be grounds for termination, the employer could not terminate the employee “for cause” for the purpose of prorating his salary to the date of termination.

The department pointed to a standard established by a New Hampshire Superior Court case in which the court stated that “an employer may dismiss an employee ‘for cause’ if the employee engages in misconduct. An employee’s misconduct must comprise reasonable grounds for termination, and the employee must have received notice, express or fairly implied, that such misconduct could be grounds for termination.”

The court cited other cases that held that an employer must offer an employee a proper reason for a “for cause” dismissal. In reviewing a “for cause” dismissal, the court said it would focus not on whether the employee actually committed misconduct, but rather on whether the employer reasonably determined it had cause to terminate.

Since you counseled the employee about his abusive managerial style and further, since you specifically told him that if the behavior continued, he could be terminated, it would appear that you have met the test of a “for cause” termination, which would justify the proration of your employee’s pay to the last day of work.

It would be even better if you memorialized your counseling sessions in a written document in the employee’s personnel file, but the department and Superior Court decisions both say that the notice can be “express or fairly implied,” and there does not appear to be a hard and fast rule about written notice.

Of course, the best route to take for misconduct situations is for an employer to provide an employee with notice that the behavior is unacceptable and, if it gets to that point, written notice that any continued poor performance will be grounds for termination.

Keep in mind that there may be some situations of gross misconduct, such as an assault or sexual harassment, when advance written notice may not be needed in order to justify a “for cause” termination sufficient to justify the proration of a salaried employee’s pay to a daily basis.

In such a situation, the department or a court would likely find that the employee had implied notice, either from a handbook, training or generally recognized workplace standards, that such behavior would result in a “for cause” termination.

Linda Johnson, as co-chair for both the Litigation Department and Education Law Group at the law firm of McLane, Graf, Raulerson & Middleton, can be reached at 603- 628-1267 or linda.johnson@mclane.com.

This article appears in the February 22 2013 issue of New Hampshire Business Review